I recently arranged a commercial term loan against a mixed-use building for a client. The asset was only held on a short leasehold basis, making this case an especially interesting one.
My client in this instance was a property developer with whom Enness had a long-standing professional relationship. We had previously assisted with the purchase of this particular building, which had two commercial premises on the ground floor and around twenty flats above.
My client’s income was very strong, and the building was high-yielding. This meant the income from his new asset would pay back the purchase amount within a few years.
Unusually, however, the building was only held on relatively short lease; there were 11 years remaining. My client did not have the right to extend the lease automatically, meaning the lender’s security would effectively disappear in just over 10 years’ time.
We put together a case for using my client’s strong cash flow to amortise the loan over a 5 year period. In this way, the bank would be fully repaid over the term of the loan. This, coupled with his extensive experience in the property sector, was enough to mitigate the risk in the bank’s eyes. They were happy to issue a 5 year commercial term loan.
There are not many lenders in the country who would be able to supply financing on this basis, and certainly no other brokers with the necessary contacts, expertise and experience to find a solution to a case like this.
Given the circumstances, my client was expecting to have to pay a higher interest rate for the loan. Even though the asset was held on a short leasehold basis, the eventual price of funding was not too dissimilar to an ordinary commercial term loan on a freehold property.
All in all, this was a fantastic result.